TerraVolt Holdings, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 000-50331 CalEthos, Inc. (Exact name of registrant as specified in its charter) Nevada 98-0371433 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 11753 Willard Avenue Tustin , California 92782 (Address of Principal Executive Offices) (Zip Code) (714) 352-5315 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. ☐ Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒ As of May 15, 2023, there were 14,495,621 outstanding shares of the registrant’s common stock, par value $0.001 per share. TABLE OF CONTENTS PAGE Cautionary Note Regarding Forward Looking Statements iii PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 1 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 2 Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2023 and 2022 3 Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 4 Notes to the Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 14 Item 4. Controls and Procedures 14 PART II OTHER INFORMATION Item 1. Legal Proceedings 15 Item 1A. Risk Factors 15 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15 Item 3. Default Upon Senior Securities 15 Item 4. Mine Safety Disclosures 15 Item 5. Other Information 15 Item 6. Exhibits 15 Signatures 16 - i - PART I - FINANCIAL INFORMATION Item 1: Financial Statements CalEthos, Inc. For the Three Months Ended March 31, 2023 Index to the Condensed Consolidated Financial Statements Contents Page (s) Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022 1 Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 2 Unaudited Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2023 and 2022 3 Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 4 Notes to the Unaudited Condensed Consolidated Financial Statements 5 - ii - CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, may address or relate to future events and expectations and, as such, constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things: ● our ability to implement our current stated business plans; ● our ability to retain key members of our management team; ● our future financing or acquisition plans and our ability to consummate any such transactions on favorable terms if at all; ● our ability to close on the real estate property we have optioned and to obtain the necessary regulatory approvals required for the construction and build-out of our planned data center operation; ● our anticipated needs for working capital; and ● our ability to establish a market for our common stock and operate as a public company. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. - iii - CalEthos, Inc. Condensed Consolidated Balance Sheets As of March 31, 2023 As of December 31, 2022 (Unaudited) Assets Current assets Cash and cash equivalents $ 1,913,000 $ 2,067,000 Prepaid and other current assets - 4,000 Total current assets 1,913,000 2,071,000 Other assets 84,000 - Total assets $ 1,997,000 $ 2,071,000 Liabilities and stockholders’ deficit Current liabilities Accounts payable and accrued expenses $ 663,000 $ 540,000 Convertible promissory notes, net 4,613,000 4,613,000 Notes payable 61,000 61,000 Total current liabilities 5,337,000 5,214,000 Stockholders’ deficit Series A convertible preferred stock, par value $ 0.001 , 3,600,000 shares authorized; no shares issued and outstanding - - Preferred stock, par value $ 0.001 , 100,000,000 shares authorized; no shares issued and outstanding - - Preferred stock, value - - Common stock par value $ 0.001 : 100,000,000 shares authorized; 24,495,621 and 24,495,621 shares issued and outstanding 24,000 24,000 Additional paid-in capital 11,480,000 11,480,000 Other comprehensive income 7,000 5,000 Stock subscription receivable ( 2,000 ) ( 2,000 ) Accumulated deficit ( 14,849,000 ) ( 14,650,000 ) Total stockholders’ deficit ( 3,340,000 ) ( 3,143,000 ) Total liabilities and stockholders’ deficit $ 1,997,000 $ 2,071,000 See accompanying notes to these unaudited condensed consolidated financial statements. 1 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2023 2022 Revenues $ - $ - Operating expenses Professional fees 89,000 3,415,000 General and administrative expenses 8,000 4,000 Total operating expenses 97,000 3,419,000 Loss from operations ( 97,000 ) ( 3,419,000 ) Other income (expenses) Interest income 14,000 - Financing costs ( 116,000 ) ( 507,000 ) Total other expenses ( 102,000 ) ( 507,000 ) Loss before provision for income taxes ( 199,000 ) ( 3,926,000 ) Provision for income taxes - - Net loss $ ( 199,000 ) $ ( 3,926,000 ) Net loss per share, basic and diluted $ ( 0.01 ) $ ( 0.15 ) Weighted average common shares outstanding – basic and diluted 24,495,621 25,995,621 Comprehensive income (loss): Net loss $ ( 199,000 ) $ ( 3,926,000 ) Foreign currency translation adjustment 2,000 ( 3,000 ) Comprehensive loss $ ( 197,000 ) $ ( 3,929,000 ) See accompanying notes to these unaudited condensed consolidated financial statements. 2 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Stockholders’ Deficit For the Three Months Ended March 31, 2023 Shares Amount Shares Amount Shares Amount Capital Receivable Income Deficit Deficit Series A convertible preferred stock Preferred Stock Common Stock Additional Paid-in Stock Subscription Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Receivable Income Deficit Deficit Balance, January 1, 2023 - $ - - $ - 24,495,621 $ 24,000 $ 11,480,000 $ ( 2,000 ) $ 5,000 $ ( 14,650,000 ) $ ( 3,143,000 ) Foreign currency translation income - - - - - - - - 2,000 - 2,000 Net loss - - - - - - - - - ( 199,000 ) ( 199,000 ) Balance, March 31, 2023 - $ - - $ - 24,495,621 $ 24,000 $ 11,480,000 $ ( 2,000 ) $ 7,000 $ ( 14,849,000 ) $ ( 3,340,000 ) For the Three Months Ended March 31, 2022 Series A convertible preferred stock Preferred Stock Common Stock Additional Paid-in Stock Subscription Other Comprehensive Accumulated Total Stockholders’ Shares Amount Shares Amount Shares Amount Capital Receivable Loss Deficit Deficit Balance, January 1, 2022 - $ - - $ - 25,995,621 $ 26,000 $ 16,269,000 $ ( 2,000 ) $ ( 2,000 ) $ ( 16,831,000 ) $ ( 540,000 ) Restricted stock grants - - - - - - 3,170,000 - - - 3,170,000 Foreign currency translation loss - - - - - - - - ( 3,000 ) - ( 3,000 ) Net loss - - - - - - - - - ( 3,926,000 ) ( 3,926,000 ) Balance, March 31, 2022 - $ - - $ - 25,995,621 $ 26,000 $ 19,439,000 $ ( 2,000 ) $ ( 5,000 ) $ ( 20,757,000 ) $ ( 1,299,000 ) See accompanying notes to these unaudited condensed consolidated financial statements. 3 CalEthos, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2023 2022 Cash Flows From Operating Activities Net loss $ ( 199,000 ) $ ( 3,926,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of convertible promissory note discounts - 487,000 Fair value of equity-based compensation - 3,170,000 Changes in operating assets and liabilities Prepaid expenses and other current assets 4,000 ( 14,000 ) Accounts payable and accrued expenses 124,000 49,000 Net Cash Used in Operating Activities ( 71,000 ) ( 234,000 ) Cash Flows From Investing Activities Other assets ( 84,000 ) ( 37,000 ) Net Cash Used in Investing Activities ( 84,000 ) ( 37,000 ) Cash Flows From Financing Activities Repayments of notes payable - ( 25,000 ) Net Cash Used in Financing Activities - ( 25,000 ) Effect of exchange rate changes on cash and cash equivalents 1,000 ( 2,000 ) Net decrease in Cash ( 154,000 ) ( 298,000 ) Cash, Beginning of Period 2,067,000 3,047,000 Cash, End of Period $ 1,913,000 $ 2,749,000 Supplemental disclosure of cash flow information: Cash paid for interest $ - $ - Cash paid for income taxes $ - $ - Non-cash investing and financing activities: Reclassification of other assets to intangible assets $ - $ 38,000 See accompanying notes to these unaudited condensed consolidated financial statements. 4 CalEthos, Inc. Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2023 Note 1 – Organization and Accounting Policies ORGANIZATION AND ACCOUNTING POLICIES CalEthos, Inc. (the “Company” or “we”) was incorporated on March 20, 2002 under the laws of the State of Nevada. The Company is implementing its plan to build a clean-energy-powered, modular data center operation using the latest energy-efficient immersion, liquid and conventional cooling technologies and provide wholesale colocation services to enterprise IT and hyperscale customers. In addition, the Company may acquire assets and all or part of other companies operating in the high-density computing industry or to invest or joint venture with other more-established companies already in the industry that would add value to the Company’s business strategy. In July 2022, due to the declining state of the bitcoin mining industry and the market for its planned products, the Company’s board of directors resolved to discontinue the development in South Korea of the Company’s 5 nanometer ASIC chip and containerized, immersion-cooled bitcoin mining computer system and to focus exclusively on developing the clean-energy-powered data center segment of its business strategy. The Company has suspended operations of its South Korean subsidiary and will decide in the next twelve months whether to use it to develop other products or dissolve it. Korean entity On November 5, 2021, AIQ System Inc. (“AIQ”) was incorporated in Seoul, Republic of Korea. AIQ is authorized to issue 3 million shares of common stock. At the date of incorporation, 10,000 shares were issued to the Company for 100,000,000 Korean Won, or approximately $ 89,000 for 100 % ownership of AIQ. Basis of Presentation The accompanying Condensed Consolidated Financial Statements and notes thereto are unaudited. The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The March 31, 2023, condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These interim unaudited condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim three-months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or for any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K filed with the SEC on April 17, 2023. 5 Liquidity and Going Concern The Company incurred net loss of approximately $ 199,000 for the three months ended March 31, 2023 and had an accumulated deficit of approximately $ 14,849,000 as of March 31, 2023. The Company has financed its activities principally through debt and equity financing and shareholder contributions. Management expects to incur additional losses and cash outflows in the foreseeable future in connection with its operating activities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of these condensed consolidated financial statements. The Company’s condensed consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is subject to a number of risks similar to those of other similar stage companies, including dependence on key individuals; successful development, marketing and branding of products; uncertainty of product development and generation of revenues; dependence on outside sources of financing; risks associated with research and development; dependence on third-party suppliers and collaborators; protection of intellectual property; and competition with larger, better-capitalized companies. Ultimately, the attainment of profitable operations is dependent on future events, including obtaining adequate financing to fund its operations and generating a level of revenues adequate to support the Company’s cost structure. The Company will need to raise debt or equity financing in the future in order to continue its operations and achieve its growth targets. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms, when and if needed, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including market demand for the Company’s products and services, the success of product development efforts, the timing of receipts for customer deposits, the management of working capital, and the continuation of normal payment terms and conditions for purchase of goods and services. The Company believes its cash balances and cash flow from operations will not be sufficient to fund its operations and growth for the next twelve months from the issuance date of these financial statements. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows from operations, then the Company will likely need to raise additional funding from investors or through other avenues to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern COVID-19 The continuing COVID-19 global pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet known. Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. The impact of COVID-19 has not been significant to the Company’s results of operations, financial condition, and liquidity and capital resources. Although no material impairment or other effects have been identified to date, there is substantial uncertainty in the nature and degree of its continued effects over time. That uncertainty affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. The Company will continue to consider the potential impact of the COVID-19 pandemic on its business operations. Earnings Per Share The Company uses ASC 260, “ Earnings Per Share ” for calculating the basic and diluted earnings (loss) per share. The Company computes basic earnings (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and warrants and stock awards. For periods with a net loss, basic and diluted loss per share is the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share. Securities that could potentially dilute loss per share in the future were not included in the computation of diluted loss per share for the three months ended March 31, 2023 and 2022 because their inclusion would be anti-dilutive. Common stock equivalents amounted to 7,510,448 and 19,011,450 as of March 31, 2023 and 2022, respectively. 6 Recent Accounting Pronouncements The Company’s management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by the Company and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on the Company’s condensed consolidated financial condition or the results of its operations. Note 2 – Other Assets OTHER ASSETS On March 30, 2023, the Company signed an option agreement to acquire 80 acres of commercially zoned land in Imperial County, California (the “Option”) for $ 3,360,000 (“Purchase Price”). The Option expires in September 2024 . The Company paid a non-refundable deposit of $ 84,000 on the signing of the Option, which has been recognized as other assets in the condensed consolidated balance sheet. The Company is required to deposit an additional $ 84,000 into an escrow (“Escrow Funds”) within 10 days after the execution of the agreement. As of the issuance of these interim condensed consolidated financial statements, the escrow had not been set up. Once the escrow is set up, the Company will deposit the $ 84,000 . If the Company does not exercise the Option by September 2024, the Escrow funds will be returned to the Company. The Purchase Price is payable with a cash payment of $ 1,680,000 and the issuance of 840,000 shares of the Company’s common stock (the “Purchase Shares”). At the closing of the purchase (“Closing Date”), if the stock is trading at a value less than $ 1.00 per share, the Company is required to issue a promissory note in the amount of $ 840,000 , payable on the third anniversary of the closing date, with an interest rate equal to the Secured Overnight Financing Rate plus 2.0 % . If the Purchase Shares are issued at the Closing Date, the Company has agreed to repurchase the Shares (the “Put Option”) under specific circumstances. However, the Put Option expires if the Company’s common stock trades above $2.00 per share for 120 consecutive days. If the Company’s common stock trades below $2.00 per for 10 consecutive days, the Holder has the option for the Company to repurchase the Purchase Shares for $2.00 per share . Note 3 – Accounts Payable and Accrued Expenses ACCOUNTS PAYABLE AND ACCRUED EXPENSES The following table summarizes the Company’s accounts payable and accrued expense balances: SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES March 31, December 31, 2023 2022 Accounts payable $ 186,000 $ 186,000 Accrued expenses 35,000 28,000 Accrued interest 442,000 326,000 Accounts payable and accrued expenses $ 663,000 $ 540,000 Accrued Interest The following table presents the details of accrued interest: SCHEDULE OF ACCRUED INTEREST March 31, December 31, 2023 2022 Notes payable $ 19,000 $ 17,000 Convertible promissory notes 423,000 309,000 Balance, end of the year $ 442,000 $ 326,000 7 Note 4 – Notes Payable NOTES PAYABLE The table below summarizes the transactions: SCHEDULE OF NOTES PAYABLE March 31, December 31, 2023 2022 Balance, beginning of the year $ 61,000 $ 111,000 Additions - - Payments - ( 50,000 ) Balance, end of the year $ 61,000 $ 61,000 On July 7, 2020, the Company issued a promissory note in the principal amount of $ 11,000 . The note is noninterest bearing. The principal was due on or before March 11, 2022. During any event of default under the note, the interest rate shall increase to 10 % per annum. Events of default include failure to pay principal or interest, breach of covenants, breach of representations and warranties, borrower’s assignment of substantial part of its property or business, any money judgment, writ, or similar process shall be entered or filed against the borrower or any subsidiary of the borrower or any of its properties or other assets for more than $ 100,000 , bankruptcy, liquidation of business, and cessation of operations. The principal amount outstanding under this note was $ 11,000 as of March 31, 2023. The note principal and interest are past due, therefore in default. Interest accrued as of March 31, 2023 was $ 3,000 . On April 22, 2021, the Company issued a promissory note in the principal amount of $ 50,000 . The interest on the unpaid principal balance accrued at a rate of 10 % per annum. The principal and any accrued interest were to be paid in a single installment on or before April 22, 2022 . If the Company fails to pay the balance of this note in full on the date or fails to make any payments due within 15 days of the due date, any unpaid principal shall accrue interest at the rate of 15 % per annum during the default. Events of default include failure to make any payment including accrued interest when due, voluntary, or involuntary petition of bankruptcy, appointment of a receiver, custodian, trustee, or similar party to take possession of the Company’s assets or property, or assignment made by the Company for the benefit of creditors. The principal amount outstanding under this note was $ 50,000 as of March 31, 2023. The note principal and interest are past due, therefore in default. Interest accrued, including default interest, as of March 31, 2023 was $ 12,000 . Interest expense on notes payable amounted to $ 2,000 and $ 2,000 for the three months ended March 31, 2023 and 2022, respectively. Note 5 – Convertible Promissory Notes CONVERTIBLE PROMISSORY NOTES During the years ended December 2020 and 2019, the Company issued convertible promissory notes for approximately $ 708,000 . As of March 31, 2023, the accrued and unpaid interest was approximately $ 193,000 . In 2021, the Company issued two convertible promissory notes of $ 55,000 and $ 3,850,000 (the “Notes”), respectively. The total aggregate proceeds were $ 3,550,000 due to a $ 355,000 aggregate original issue discount. The Notes are non-interest bearing with the principal due and payable on March 1, 2022 and August 31, 2022 , respectively. Any amount of unpaid principal on the date of maturity will accrue interest at rate of 10 % per annum (default interest). Interest accrued as of March 31, 2023 is $ 230,000 . The principal amount and all accrued interest are convertible into shares of the Company’s common stock, as of the date of issuance, at a rate of $ 1.00 and $ 1.25 per share (“Conversion Rate”), respectively. The Conversion Rate is adjustable if, at any time when any principal amount of the Notes remains unpaid or unconverted, the Company issues or sells any shares of the Company’s common stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith), which is less than the Conversion Rate in effect on the date of such issuance (or deemed issuance) of such shares of common stock (a “Dilutive Issuance”). Immediately upon a Dilutive Issuance, the Conversion Rate will be reduced to the amount of the consideration per share received by the Company in such Dilutive Issuance. Events of default include failure to issue conversion shares, the occurrence of a breach or default under any other agreement, any money judgment, writ, or similar process entered or filed against the Company or any of its property or other assets for more than $ 100,000 , bankruptcy filing, application for the appointment of a custodian, trustee or receiver, insolvency, the Company’s common stock delisted, or dissolution, winding up, or termination of the business of the Company. The note principal and interest are past due, therefore in default. In connection with the issuance of the Notes, the Company issued to the purchasers of the Notes stock purchase warrants (the “Warrants”) to purchase an aggregate of 1,567,500 shares of the Company’s common stock for a purchase price of $ 1.50 to $ 1.87 per share, subject to adjustments. The Warrants were valued using the Black Scholes option pricing model for a total fair value of $ 3,004,000 based on a 3 -year term, volatility of 404.91 % to 405.93 %, a risk-free equivalent yield of 0.27 % to 0.42 %, and stock price ranging from $ 0.10 to $ 1.95 . In accordance with ASC 470 - Debt, the Company has allocated the cash proceeds amounts of the Notes among the Notes, the Warrants, and the conversion feature. The relative fair value of the Warrants issued amounted to approximately $ 1,690,000 and the beneficial conversion amounted to nil, which amounts are being amortized and expensed over the term of the Notes. The Company determined that the conversion feature of the Notes would not be an embedded feature to be bifurcated and accounted for as a derivative in accordance with ASC 815-15 Derivatives and Hedging . 8 Financing cost recognized for the amortization of debt discount was nil and approximately $ 487,000 for the three months ended March 31, 2023 and 2022, respectively. The convertible promissory notes consisted of the following: SCHEDULE OF CONVERTIBLE PROMISSORY NOTES March 31, December 31, 2023 2022 Principal Balance, beginning of year $ 4,613,000 $ 4,613,000 Additions - - Balance, end of period 4,613,000 4,613,000 Discount Balance, beginning of year - 1,526,000 Additions - - Amortization - ( 1,526,000 ) Balance, end of period - - Net carrying amount $ 4,613,000 $ 4,613,000 Potential future shares to be issued on conversion of the notes as of the dates indicated are as follows: SCHEDULE OF POTENTIAL FUTURE SHARES ISSUANCE OF CONVERSION NOTES March 31, December 31, 2023 2022 Principal $ 4,613,000 $ 4,613,000 Interest 423,000 309,000 Total 5,036,000 4,922,000 Conversion price per share 1.00 – 1.25 1.00 – 1.25 Potential future share 4,220,448 4,125,699 The default interest expense for the convertible promissory notes amounted to $ 114,000 and $ 18,000 for the three months ended March 31, 2023 and 2022, respectively. Note 6 – Commitments and contingencies COMMITMENTS AND CONTINGENCIES Litigation From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably. N ote 7 – Equity EQUITY Warrants Expired During the three months ended March 31, 2023, a total of 73,304 warrants expired, leaving a remaining outstanding balance of 1,695,000 warrants as of March 31, 2023, with a weighted average exercise price of $ 1.46 and average remaining life of 0 .75 years. Note 8 – Subsequent Events SUBSEQUENT EVENTS The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined there are no reportable events except for the following. Cancellation of Restricted Stock Awards On April 10, 2023, the Company completed the required paperwork for our transfer agent to cancel 10,000,000 shares of restricted stock that was previously issued to its former Chief Technology Officer. 9 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in our other filings with the Securities and Exchange Commission. See “Cautionary Note Regarding Forward Looking Statements.” Plan of Operations As of the filing of this Report, it is our plan to continue our focus on building a large-scale, clean-energy-powered, modular data center operation using the latest energy-efficient immersion, liquid and conventional cooling technologies and provide wholesale colocation services to enterprise IT and hyperscale customers. While it was originally part of our strategy to build such a facility for our own utilization with the bitcoin mining systems that we planned to manufacture and use for our own bitcoin mining operations, going forward, our operating plan is to focus only on developing and building clean-energy powered data centers for enterprise IT and hyperscale customers. To implement this plan, we have optioned 80 acres of land for the initial phase of development and are having on-going discussions and negotiations to acquire clean energy from the local power utility and nearby geothermal power plants and solar farms and evaluating various paths to run conduit for accessing close-by fiber networks. We intend to engage a Data Center Architect and Engineering firm to complete a feasibility study and site development plan. Once the plan is developed, we will submit plans to authorities for approval and for permits to start construction. We expect, based on all related factors, that a submittable plan, which will include civil engineering, data center and infrastructure design and construction schedule will take approximately three to six months to complete. Once submitted to the appropriate governmental departments and agencies for approval, it is expected that it could take another three months or more before we receive the required permits for construction, and that the construction could take another six months or more to complete depending on supply chain issues at the time for data center, electrical and communication connectivity components of the data center build. As we move through the development process to build a clean-energy powered data center operation, we will continue to refine and finalize the courses of action needed to implement our business plan and operations. As a result, management has not fully determined our actual short-term or long-term capital requirements, which management expects to be substantial. It is anticipated that we will incur significant expenses in the implementation of our business plan as described herein, and that we will require substantial financing to complete the development and construction of the planned data center operation. A failure to obtain this necessary capital when required on acceptable terms, or at all, could force us to delay, limit, reduce, or terminate our development plans, any commercialization efforts and any other operations. We may not be able to secure financing on favorable terms, or at all, to meet our future capital needs. In addition, even if we are able to obtain sufficient funding to commence our business operations, we may need to pursue additional financing in the future to make expenditures and/or investments to support the growth of our business. In addition, we may require additional capital to pursue our business objectives and respond to new competitive pressures, pay extraordinary expenses or fund our growth, including through acquisitions. Additional funding, however, may not be available when required on terms that are acceptable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when it is required, our ability to commence and grow our proposed business operations, to support our business and to respond to business challenges could be significantly limited. We currently have only limited capital with which to pay these anticipated expenses. To fund our business plan going forward, we intend to raise funds from investors by issuing common stock, preferred stock and/or debt securities. 10 Results of Operations The table summarizes the results of operations for the three months ended March 31: 2023 2022 Revenues $ - $ - Operating expenses Professional fees 89,000 3,415,000 General and administrative expenses 8,000 4,000 Operating expenses 97,000 3,419,000 Loss from operations (97,000 ) (3,419,000 ) Other income (expenses) Interest income 14,000 - Financing costs (116,000 ) (507,000 ) Total other expenses (102,000 ) (507,000 ) Loss before provision for income taxes (199,000 ) (3,926,000 ) Provision for income taxes - - Net loss $ (199,000 ) $ (3,926,000 ) Revenues We had no revenues for the three months ended March 31, 2023 and 2022. Expenses Our operating expenses were $97,000 and $3,419,000 for the three months ended March 31, 2023 and March 31, 2022, respectively. The decrease of $3,322,000 was due to no stock-based compensation for the three months ended March 31, 2023 because of the forfeiture of the stock-based awards. Stock based compensation expense for the three months ended March 31, 2022 was $3,170,000. Other income (expense) Our other income and expenses is comprised of interest income of approximately $14,000 from the short-term investment of our cash balance, and financing cost of approximately $116,000 for the interest incurred with our notes payable and convertible promissory notes. Liquidity and Capital Resources Our financial position as of March 31, 2023 and December 31, 2022 were as follows: Working Deficit March 31, 2023 December 31, 2022 (Unaudited) Current assets $ 1,913,000 $ 2,071,000 Current liabilities 5,337,000 5,214,000 Working deficit $ (3,424,000 ) $ (3,143,000 ) At March 31, 2023, we had cash of approximately $1,913,000. The working deficit increased by approximately $281,000 from December 31, 2022 to March 31, 2023. The increase in the working capital deficit was due primarily to the decrease in cash of $154,000 and the increase in accounts payable and accrued expenses of approximately $123,000. At March 31, 2023, we had outstanding promissory notes and accrued interest in the aggregate amount of $80,000 and outstanding convertible notes and accrued interest in the aggregate amount of $5,036,000, which were past due and all of which were in default. See Notes 4 and 5 to the accompanying unaudited condensed consolidated financial statements. Cash Flows For the Three Months Ended March 31, 2023 2022 Net cash used in operating activities $ (71,000 ) $ (234,000 ) Net cash used in investing activities (84,000 ) (37,000 ) Net cash used in financing activities - (25,000 ) Effect of exchange rate changes 1,000 (2,000 ) Net decrease in Cash during the Period (154,000 ) (298,000 ) Cash, Beginning of Period 2,067,000 3,047,000 Cash, End of Period $ 1,913,000 $ 2,749,000 11 Cash flows used in operating activities Net cash used in operating activities decreased by $163,000 during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 due to a decrease in cash expense of approximately $155,000. Cash flows used in investing activities Net cash used in investing activities was $84,000 during the three months ended March 31, 2023 compared to $37,000 for the three months ended March 31, 2022. The cash used during the three months ended March 31, 2023 was the deposit for the land purchase option. The cash used during the three months ended March 31, 2022 was the payment for design and development work for our proposed ASIC chip, which was discontinued in the third quarter of 2022. Cash flows used in financing activities Net cash used in financing activities was nil during the three months ended March 31, 2023 as compared to $25,000 for the three months ended March 31, 2022 due to repayment of notes payable. Capital Requirements We estimate that we will require up to $2 million for expenses and operating costs to complete the development of a comprehensive plan for our planned clean-energy powered, containerized, immersion-cooled data center operation. Once the plans are approved for construction by the requisite authorities, the Company estimates the initial phase of our planned data center operation will cost between $60 to $75 million to build. Past the plan development phase, we will need to raise capital in order to build its planned operations and achieve its growth targets, which the company plans to raise from investors by issuing common stock, preferred stock and/or debt securities. However, there can be no assurance that such financing will be available in sufficient amounts and on acceptable terms when it is needed. The precise amount and timing of our funding needs cannot be determined accurately at this time, and will depend on a number of factors, including but not limited to the condition of the capital market, investor interest in our business plan, demand for our services by enterprise customers, the timing of approvals from authorities to start construction, the management of working capital, and reasonable payment terms and conditions for the purchase of the goods and services we will need to build our data center operation. 12 Critical Accounting Policies The preparation of condensed consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates. Principles of Consolidation The consolidated financial statements include the accounts of our company and our wholly-owned subsidiary from the formation date. All material intercompany transactions and balances have been eliminated in consolidation. Foreign Currency Translation The financial statements of our foreign subsidiary, for which the functional currency is the local currency, are translated into U.S. dollars using the exchange rate at the consolidated balance sheet date for assets and liabilities and a weighted-average exchange rate during the year for revenue, expenses, gains and losses. Translation adjustments are recorded as other comprehensive income (loss) within shareholders’ equity (deficit). Gains or losses from foreign currency transactions are recognized in the consolidated statements of operations. Debt and Debt Discounts In accordance with ASC 470-20, Debt with Conversion and Other Options , we first allocated the cash proceeds of the notes between the notes and the warrants on a relative fair value basis. Secondly, proceeds are then allocated to the conversion feature. We account for debt discounts originating in connection with conversion features that remain embedded in the related notes in accordance with ASC 470-20. These costs are classified on the consolidated balance sheet as a direct deduction from the debt liability. We amortizes these costs over the term of its debt agreements as financing cost in the consolidated statement of operations. Stock-Based Compensation We account for our stock-based compensation under ASC 718, “ Compensation – Stock Compensation ” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We use the fair value method for equity instruments granted to non-employees and use the BSM model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant (measurement date) and is recognized over the vesting periods. 13 Recent Accounting Pronouncements Our management reviewed all recently issued accounting standard updates (“ASU’s”) not yet adopted by us and does not believe the future adoptions of any such ASU’s may be expected to cause a material impact on our condensed consolidated financial condition or the results of its operations. Off-Balance Sheet Arrangements As of March 31, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required under Regulation S-K for smaller reporting companies. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Report, our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures. Based on their evaluation, the Certifying Officers concluded that, as of March 31, 2023, our disclosure controls and procedures were not effective. The material weakness related to internal control over financial reporting that was identified as of March 31, 2023 was that we did not have sufficient personnel staffing in our accounting and financial reporting department. As a result, we were not able to achieve adequate segregation of duties and were not able to provide for adequate review of the financial statements. This control deficiency could result in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. However, our management believes that the material weakness identified does not result in the restatement of any previously reported financial statements or any other related financial disclosure, and management does not believe that the material weakness had any effect on the accuracy of our financial statements included as part of this Quarterly Report. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking action and implementing additional enhancements or improvements, as necessary and as funds allow. Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Internal Controls Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings We know of no material active or pending legal proceeding against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. Item 1A. Risk Factors We are a small reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this item. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Sales of Unregistered Securities There have been no sales of unregistered securities within the period covered by this report that would be required to be disclosed pursuant to Item 701 of Regulation S-K. Repurchases of Shares or of Company Equity Securities None. Item 3. Default Upon Senior Securities As of March 31, 2023, we had outstanding promissory notes and accrued interest in the aggregate amount of $80,000 and outstanding convertible notes and accrued interest in aggregate amount of $5,036,000, all of which were past due and all of which were in default. See Notes 4 and 5 to our accompanying unaudited condensed consolidated financial statements. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information None Item 6. Exhibits The following documents are filed as a part of this report or incorporated herein by reference: Exhibit Number Description 31.1 Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). 15 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 15, 2023 CalEthos, Inc. By: /s/ Michael Campbell Name: Michael Campbell Title: Chief Executive Officer By: /s/ Dean S Skupen Name: Dean S Skupen Title: Chief Financial Officer 16